Kindle Fire won't go big to take on iPad

Amazon next week will announce two 7-inch Kindle Fire models, one with new hardware and the other an updated version of the original, CNET has learned. That's counter to rumors it would launch a larger version.

Amazon Kindle Fire

Is Amazon's $199 Kindle Fire tablet too good to be true? CNET's Donald Bell gives his assessment along with a tour of the device and its features.

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Amazon plans to double down on the 7-inch tablet market with two new Kindle Fire models, CNET has learned.

Despite speculation that Amazon was preparing a larger 8.9 or 10-inch version, the company will only unveil a new 7-inch Kindle Fire and a slightly revamped version of the original tablet in an event scheduled for next week, according to a person who has seen the products.

The new Kindle Fire tablets are crucial in keeping Amazon competitive in the tablet business, which already faces tougher competition from Google's own Nexus 7 and the prospects of a lower-priced, smaller iPad Mini from Apple. They play into Amazon's broader strategy of playing a more significant role in the mobile consumer world.

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Amazon vaulted into the tablet market a year ago with the Kindle Fire, with $199 price tag that many felt was the most innovative aspect of the product. The attractive price tag, access to Amazon Prime content, and a featured spot on the online retailer's home page generated a lot of buzz for the product, with many believing it would end up being the No. 2 tablet player behind Apple.

Unlike other equipment makers, which generate their profit off of the hardware itself, Amazon views the Kindle Fire as another storefront -- one that consumers can take with them wherever they go. As a result, it was able to offer the tablet at such a low price. The company can make up the difference on books, DVDs, and other products that consumers end up ordering through the tablet. But with the emergence of several other low-cost tablets, including the $199 Nexus 7, its price advantage has been negated.

Rather than expand its potential market and launch a larger Kindle Fire to compete against the iPad, Amazon will stick with the two 7-inch tablets. The company said earlier this week that the original Kindle Fire was "sold out," a convenient announcement given the upcoming event next week.

But Amazon appears to be making room for a slightly upgraded version of the original Kindle Fire, which includes a new user interface. While the person didn't have any pricing information, the company will almost certainly charge a lower price for the device than the original.

The more exciting product is the new higher-end 7-inch Kindle Fire model, which will feature more hardware improvements, including a faster processor, a camera, physical volume controls, and an HDMI port. It will also have larger storage capacity, but it will still not be expandable. There is no pricing information on the device.

The expanded availability and a lineup of two Kindle Fire tablets at varying -- but still low -- prices could make Amazon a major player this holiday season.

David Carnoy contributed to this story.

Update, 9 p.m. PT:Citing unnamed sources, The Wall Street Journal reported today that Amazon has an ad-supported tablet up its sleeve that will cost less than the company's ad-free tablet offerings. The slate will display an ad when users "wake" the device, the Journal said. The paper said it didn't have information on which advertisers might be involved or on how much the device would cost.

Amazon Kindle Fire

Is Amazon's $199 Kindle Fire tablet too good to be true? CNET's Donald Bell gives his assessment along with a tour of the device and its features.